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Facts
The assessee claimed exemption under Section 54F of the Income Tax Act on sale of land, having invested Rs. 3 crores in a new residential house. The Assessing Officer denied the exemption, stating that the assessee owned 16.67% share in 6 flats, which constituted ownership of more than one residential property.
Held
The Tribunal held that joint ownership or part ownership of residential flats does not amount to absolute ownership for the purpose of disallowing exemption under Section 54F of the Income Tax Act. The term "own" in Section 54F implies full and whole ownership, not partial.
Key Issues
Whether joint ownership of multiple residential properties disqualifies an assessee from claiming exemption under Section 54F of the Income Tax Act, when the ownership share is fractional and each unit is occupied by a different family member.
Sections Cited
Section 54F, Section 54EC, Section 45, Section 32
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Income Tax Appellate Tribunal, MUMBAI BENCH “A” MUMBAI
Before: SHRI AMIT SHUKLA & MS. PADMAVATHY S.
This appeal is against the order of Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre dated 12.07.2023 for assessment year 2016-17. The only issue contended by the assessee through various grounds of appeal is the disallowance of exemption claimed u/s 54F of the Income Tax Act (the Act) to the tune of Rs.3 crores.
The assessee is an individual and filed the return of income for assessment year 2016-17 declaring total income of Abdul Rahim Suleman Ghaswala 2 Abdul Rahim Suleman Ghaswala Rs.5,43,56,720/-. The case was selected for scrutiny and the . The case was selected for scrutiny and the . The case was selected for scrutiny and the statutory notices that duly served on the assessee. The Assessing statutory notices that duly served on the assessee. The Assessing statutory notices that duly served on the assessee. The Assessing Officer during the course of assessment notice Officer during the course of assessment noticed that the assessee that the assessee has received a sum of Rs.8,70,0 has received a sum of Rs.8,70,00,000/- as his share of 20% in the as his share of 20% in the sale of land jointly owned with other co sale of land jointly owned with other co-owners. It is further noticed owners. It is further noticed that the assessee had claimed exemption u/s 54F of the Act for Rs. that the assessee had claimed exemption u/s 54F of the Act for Rs. that the assessee had claimed exemption u/s 54F of the Act for Rs. 3 crores towards investment in a new residential house property 3 crores towards investment in a new residential house property 3 crores towards investment in a new residential house property and also exemption and also exemption u/s 54EC of Rs.54,00,000/ u/s 54EC of Rs.54,00,000/- towards investment in NHAI Bonds. The Assessing Officer called on the investment in NHAI Bonds. The Assessing Officer called on the investment in NHAI Bonds. The Assessing Officer called on the assessee to submit explanations as to how he had fulfilled the assessee to submit explanations as to how he had fulfilled the assessee to submit explanations as to how he had fulfilled the conditions u/s 54F of the Act. In response the assessee furnished conditions u/s 54F of the Act. In response the assessee furnished conditions u/s 54F of the Act. In response the assessee furnished the details of the house prope the details of the house property owned by him including the rty owned by him including the properties jointly held and the nature of the property etc. From the properties jointly held and the nature of the property properties jointly held and the nature of the property details furnished the Assessing Officer noticed that the assessee details furnished the Assessing Officer noticed that the assessee details furnished the Assessing Officer noticed that the assessee owns 16.67% share in owns 16.67% share in 6 flats residential house property in residential house property in Jogeshwari, Mumbai apart from o Jogeshwari, Mumbai apart from owning various commercial wning various commercial properties vacant land and under properties vacant land and under-construction properties. The construction properties. The Assessing Officer issued show cause notice asking the assessee to Assessing Officer issued show cause notice asking the assessee to Assessing Officer issued show cause notice asking the assessee to explain why exemption u/s 54F of the Act should not be denied to explain why exemption u/s 54F of the Act should not be denied to explain why exemption u/s 54F of the Act should not be denied to him since he is own ning more than one residential property on the ing more than one residential property on the date of the transfer. In response, the assessee submitted that date of the transfer. In response, the assessee submitted that date of the transfer. In response, the assessee submitted that though he is having 16.67% share in 6 residential flats, he is though he is having 16.67% share in 6 residential flats, though he is having 16.67% share in 6 residential flats, actually the owner of only one flat the owner of only one flat and that each of the family each of the family members is occupying members is occupying only one out of this flats owned by them. only one out of this flats owned by them. Accordingly, the assessee submitted that he fulfils the conditions Accordingly, the assessee submitted that he fulfils the conditions Accordingly, the assessee submitted that he fulfils the conditions
Abdul Rahim Suleman Ghaswala 3 Abdul Rahim Suleman Ghaswala prescribed u/s 54F of the Act. The Assessing Officer did not accept prescribed u/s 54F of the Act. The Assessing Officer did not accept prescribed u/s 54F of the Act. The Assessing Officer did not accept the submissions of the assessee for the reason that the assessee the submissions of the assessee for the reason that the assessee the submissions of the assessee for the reason that the assessee has not submitted any tted any evidences or relevant documents to or relevant documents to substantiate that each flat is e substantiate that each flat is earmarked for each member and that for each member and that the other co-owners do not have any right in the said flat. The Ld. owners do not have any right in the said flat. The Ld. owners do not have any right in the said flat. The Ld. AO by relying on the decision of the Hon’ble Karnataka High Court AO by relying on the decision of the Hon’ble Karnataka High Court AO by relying on the decision of the Hon’ble Karnataka High Court as upheld by the Apex Court in the case of the Apex Court in the case of M.J. Siwani v. CIT M.J. Siwani v. CIT [2015] 53 taxmann.com 318 and denied the exemption claimed u/s [2015] 53 taxmann.com 318 and denied the exemption claimed u/s [2015] 53 taxmann.com 318 and denied the exemption claimed u/s 54F of the Act.
Aggrieved the assessee filed its appeal before the Ld. CIT(A) Aggrieved the assessee filed its appeal before the Ld. CIT(A) Aggrieved the assessee filed its appeal before the Ld. CIT(A) who upheld the order of the AO. who upheld the order of the AO.
Before us, the Ld. AR subm Before us, the Ld. AR submitted that the assessee though itted that the assessee though jointly owns 16.67% in the six flats jointly owns 16.67% in the six flats he is actually occupying only is actually occupying only one flat since each of six flats is earmarked a particular family one flat since each of six flats is earmarked a particular family one flat since each of six flats is earmarked a particular family members. The Ld. AR also submitted that the Co members. The Ld. AR also submitted that the Co-ordinate Bench of ordinate Bench of the Tribunal in one of the the Tribunal in one of the other co-owner’s case namely Shri Sainul owner’s case namely Shri Sainul Abedin Ghaswala v. CIT(A) (ITA No. 545/Mum/2023) dated Abedin Ghaswala v. CIT(A) (ITA No. 545/Mum/2023) dated Abedin Ghaswala v. CIT(A) (ITA No. 545/Mum/2023) dated 22.05.2023 has held that the said assessee is entitled for exemption 22.05.2023 has held that the said assessee is entitled for 22.05.2023 has held that the said assessee is entitled for u/s 54F of the Act by placing reliance on the decision of the Hon’ble u/s 54F of the Act by placing reliance on the decision of the Hon’ble u/s 54F of the Act by placing reliance on the decision of the Hon’ble Madras High Court in Madras High Court in the case of Dr. P.K. Vasanthi Rangarajan v. the case of Dr. P.K. Vasanthi Rangarajan v. CIT (2012) 252 CTR 0336. The Ld. AR further submitted that the CIT (2012) 252 CTR 0336. The Ld. AR further submitted that the CIT (2012) 252 CTR 0336. The Ld. AR further submitted that the facts of assessee’s case being identical impugned issue is covered by facts of assessee’s case being identical impugned issue is covered by facts of assessee’s case being identical impugned issue is covered by the decision of the Co the decision of the Co-ordinate Bench and accordingly prayed for ordinate Bench and accordingly prayed for the deletion of the denial of f the denial of exemption u/s 54F of the Act. u/s 54F of the Act.
Abdul Rahim Suleman Ghaswala 4 Abdul Rahim Suleman Ghaswala
The Ld. DR on the other hand, submitted that the decision The Ld. DR on the other hand, submitted that the decision The Ld. DR on the other hand, submitted that the decision relied on by the Co-ordinate Bench in the other co ordinate Bench in the other co- -owner’s case is factually distinguishable and therefore cannot be applied in factually distinguishable and therefore cannot be applied in factually distinguishable and therefore cannot be applied in assessee’s case. Accordingly, the Ld. DR relied on the order of the ordingly, the Ld. DR relied on the order of the ordingly, the Ld. DR relied on the order of the Hon’ble Karnataka High Court in the case M.J. Siwani (supra). Hon’ble Karnataka High Court in the case M.J. Siwani (supra). Hon’ble Karnataka High Court in the case M.J. Siwani (supra).
We have heard the parties and perused the relevant materials We have heard the parties and perused the relevant materials We have heard the parties and perused the relevant materials on record. During the year under consideration the assessee has on record. During the year under consideration the assessee has on record. During the year under consideration the assessee has received a consideration of Rs.8,70, ration of Rs.8,70,000/- as 20% share in the sale as 20% share in the sale value of land jointly owned with other co value of land jointly owned with other co-owners. The assessee did owners. The assessee did not claim any cost of acquisition cost of acquisition against the sale consideration. against the sale consideration. However, the assessee claimed However, the assessee claimed exemption u/s 54F of the Act to the u/s 54F of the Act to the tune of Rs.3 crores and Rs.3 crores and exemption u/s 54EC of the Act for an u/s 54EC of the Act for an amount of Rs.50,00,000/ amount of Rs.50,00,000/-. The Assessing Officer denied the benefit . The Assessing Officer denied the benefit of section 54F of the Act to the assessee for the reason that the of section 54F of the Act to the assessee for the reason that the of section 54F of the Act to the assessee for the reason that the assessee is owning 16.67% of six flats in another house property assessee is owning 16.67% of six flats in another house property assessee is owning 16.67% of six flats in another house property and therefore does not fulfill the condition u/s 54F of the Act. herefore does not fulfill the condition u/s 54F of the Act. herefore does not fulfill the condition u/s 54F of the Act. Before proceedings further further let us look at the provisions of section the provisions of section 54F of the Act. Capital gain on transfer of certain capital assets not to be charged Capital gain on transfer of certain capital assets not to be charged Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house. in case of investment in residential 54F. (1) Subject to the provisions of sub (1) Subject to the provisions of sub-section (4), where, in the case of an section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain assessee being an individual or a Hindu undivided family, the capital gain assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a arises from the transfer of any long term capital asset, not being a residential house (hereafter in this section referred to as the original asset), residential house (hereaf ter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after and the assessee has, within a period of one year before or two years after and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period the date on which the transfer took place purchased, or has within a period the date on which the transfer took place purchased, or has within a period of three years after that date constructed, one residential house in India of three years after that date constructed, one residential house in India (hereafter in this section referred to as the new asset), the capital gain shall (hereafter in this section referred to as the new asset), the capital gain shall (hereafter in this section referred to as the new asset), the capital gain shall
Abdul Rahim Suleman Ghaswala 5 Abdul Rahim Suleman Ghaswala be dealt with in accordance with the following provisions of this section, that be dealt with in accordance with the following provisions of this section, that be dealt with in accordance with the following provisions of this section, that is to say,— (a) if the cost of the new asset is not less than the ) if the cost of the new asset is not less than the net consideration in net consideration in respect of the original asset, the whole of such capital gain shall not be respect of the original asset, the whole of such capital gain shall not be respect of the original asset, the whole of such capital gain shall not be charged under section 45 section 45; (b) if the cost of the new asset is less th ) if the cost of the new asset is less than the net consideration in respect an the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the of the original asset, so much of the capital gain as bears to the whole of the of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the capital gain the same proportion as the cost of the new asset bears to the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: net consideration, shall not be charged under : Provided that nothing contained in this sub that nothing contained in this sub-section shall apply where section shall apply where— (a) the assessee,— — (i) owns more than one residential house, other than the new asset, on ) owns more than one residential house, other than the new asset, on ) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or of transfer of the original asset; or (ii) purchases any residential house, other than the new asset, within a ) purchases any residential house, other than the new asset, within a ) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or period of one year after the date of transfer of the original asset; or period of one year after the date of transfer of the original asset; or (iii) constructs any residential house, other than the new asset, wit ) constructs any residential house, other than the new asset, wit ) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and period of three years after the date of transfer of the original asset; and period of three years after the date of transfer of the original asset; and (b) the income from such residential house, other than the one residential ) the income from such residential house, other than the one residential ) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable house owned on the date of transfer of the original asset, is chargeable house owned on the date of transfer of the original asset, is chargeable under the head "Income from house property". under the head "Income fro 7. The proviso clearly states that the exemption u/s.54F is not The proviso clearly states that the exemption u/s.54F is not The proviso clearly states that the exemption u/s.54F is not available if the assessee owns more than one house other than the available if the assessee owns more than one house other than the available if the assessee owns more than one house other than the new house as on the date of transfer. Therefore t new house as on the date of transfer. Therefore the argument of the he argument of the revenue is that since the assessee has revenue is that since the assessee has joint ownership to the extent joint ownership to the extent of 16.67% in 6 flats, the assessee is not entitled for exemption of 16.67% in 6 flats, the assessee is not entitled for exemption of 16.67% in 6 flats, the assessee is not entitled for exemption u/s.54F as per the proviso u/s.54F as per the proviso. Thus it is important to analyse whether it is important to analyse whether the joint ownership of 16.67% in 6 flats amounts to owning more the joint ownership of 16.67% in 6 flats amounts to owning more the joint ownership of 16.67% in 6 flats amounts to owning more than one residential house in al house in assessee's case and that the assessee assessee's case and that the assessee is the "owner" of the 6 flats jointly. It is an admitted fact that there is the "owner" of the 6 flats jointly. It is an admitted fact that there is the "owner" of the 6 flats jointly. It is an admitted fact that there is no clear demarcation with regard to the Flats jointly owned, is no clear demarcation with regard to the Flats is no clear demarcation with regard to the Flats though as per the submissions of the assessee each flat is occupied though as per the submissions of the assessee each flat is occupied though as per the submissions of the assessee each flat is occupied by each of the joint owners. he joint owners. Therefore it cannot be said that one of Therefore it cannot be said that one of Abdul Rahim Suleman Ghaswala 6 Abdul Rahim Suleman Ghaswala the joint owners i.e.the assessee in this case is the absolute owner the joint owners i.e.the assessee in this case is the absolute owner the joint owners i.e.the assessee in this case is the absolute owner of the 6 flats and no individual person o individual person on his own can sell the entire his own can sell the entire property of all 6 flats. At best the joint owner can sell h of all 6 flats. At best the joint owner can sell h of all 6 flats. At best the joint owner can sell his share of interest in the property but the property would still continue to be interest in the property but the property would still continue to be interest in the property but the property would still continue to be owned by the rest of the co owned by the rest of the co-owners. Joint ownership is Joint ownership is therefore different from absolute ownership different from absolute ownership and in the case of residential unit n the case of residential unit which is jointly owned which is jointly owned none of the co-owners can claim that he is ners can claim that he is the owner of residential the owner of residential house. Accordingly where a house is where a house is jointly owned by two or more persons, none of them can be said to be the owned by two or more persons, none of them can be said to be the owned by two or more persons, none of them can be said to be the absolute owner of the the house. So, the word "own" would not include So, the word "own" would not include a case where a residential hou a case where a residential house is partly owned by one person or se is partly owned by one person or partly owned by other person(s). other person(s). For holding this view we draw For holding this view we draw strength from the decision of the strength from the decision of the Hon’ble Supreme Court in the case Hon’ble Supreme Court in the case of Seth Banarsi Dass Gupta v. CIT [1987] 166 ITR 783, wherein, it of Seth Banarsi Dass Gupta v. CIT [1987] 166 ITR 783, wherein, it of Seth Banarsi Dass Gupta v. CIT [1987] 166 ITR 783, wherein, it was held that a fractio a fractional ownership was not sufficient for claiming nal ownership was not sufficient for claiming even fractional depreciation under section 32 of the Act and as a even fractional depreciation under section 32 of the Act even fractional depreciation under section 32 of the Act consequence to this decision consequence to this decision the Legislature had to amend the the Legislature had to amend the provisions of section 32 with effect from 1 provisions of section 32 with effect from 1-4-1997 by using the 1997 by using the expression "owned wholly wholly or partly". Since no such words are Since no such words are expressively mentioned in section 54F, in our considered view the expressively mentioned in section 54F, in our considered view expressively mentioned in section 54F, in our considered view word "own" in section 54F would include only the case where a word "own" in section 54F would include only the case where a word "own" in section 54F would include only the case where a residential house is fully and wholly owned by assessee and residential house is fully and wholly owned by assessee and residential house is fully and wholly owned by assessee and consequently would not in consequently would not include a residential house partly owned by the assessee along with other the assessee along with other persons. This view is supported by This view is supported by decisions of the coordinate bench in the following cases – decisions of the coordinate bench in the following cases decisions of the coordinate bench in the following cases
Abdul Rahim Suleman Ghaswala 7 Abdul Rahim Suleman Ghaswala
(i) ITO vs Rasiklal N. Satra Rasiklal N. Satra [2006] 98 ITD 335 (MUM.) [2006] 98 ITD 335 (MUM.) (ii) Ashok G. Chauhan vs ACIT Ashok G. Chauhan vs ACIT [2019] 105 taxmann.com 204 [2019] 105 taxmann.com 204 (Mumbai - Trib.) (ii) Anant R Gawande vs ACIT [2022] 144 taxmann.com 127 (ii) Anant R Gawande vs ACIT [2022] 144 taxmann.com 127 (ii) Anant R Gawande vs ACIT [2022] 144 taxmann.com 127 (Mumbai - Trib.) 8. The revenue has placed The revenue has placed heavy reliance on the decision of the reliance on the decision of the Karnataka High Court in the case of M J Siwani (supra) where the Karnataka High Court in the case of M J Siwani (supra) where the Karnataka High Court in the case of M J Siwani (supra) where the Hon'ble High Court has held that gh Court has held that in terms of provisions of section n terms of provisions of section 54F, where assessee on date of sale of long term where assessee on date of sale of long term capital asset owns capital asset owns a residential house even jointly with another person, his claim for a residential house even jointly with another person, his claim a residential house even jointly with another person, his claim deduction of capital gain arising from sale of asset has to be deduction of capital gain arising from sale of asset has to be deduction of capital gain arising from sale of asset has to be rejected. It is also submitted by the ld DR that the SLP against the It is also submitted by the ld DR that the SLP against the It is also submitted by the ld DR that the SLP against the order of the Hon'ble High Court is dismissed by the Hon'ble order of the Hon'ble High Court is dismissed by the Hon'ble order of the Hon'ble High Court is dismissed by the Hon'ble Supreme Court. However However we notice that a contrary view is held by a contrary view is held by the Madras High Court in the case of the Madras High Court in the case of Dr. P.K. Vasanthi Rangara Dr. P.K. Vasanthi Rangarajan (supra) where it is held that (supra) where it is held that Joint ownership of a second property is Joint ownership of a second property is no bar to exemption on transfer of individual no bar to exemption on transfer of individual property property and merely because assessee jointly owned another property on date of transfer because assessee jointly owned another property on date of because assessee jointly owned another property on date of of asset, its claim for exemption under section of asset, its claim for exemption under section 54F could not be 54F could not be rejected in respect of capital gains earned from transfer of her respect of capital gains earned from transfer of her respect of capital gains earned from transfer of her individual property. It is a settled position that . It is a settled position that in the absence of in the absence of decision of the jurisdictional High Court, when two contrary views decision of the jurisdictional High Court, when two contrary views decision of the jurisdictional High Court, when two contrary views are expressed by the non are expressed by the non-jurisdictional High Courts, the view l High Courts, the view favourable to the assessee need to be followed favourable to the assessee need to be followed and and reliance in this regard is placed on the decision of the Hon’ble Supreme Court in on the decision of the Hon’ble Supreme Court in on the decision of the Hon’ble Supreme Court in the matter of CIT vs. Vegetable Products Ltd. ((1972) 88 ITR 192 the matter of CIT vs. Vegetable Products Ltd. ((1972) 88 ITR 192 the matter of CIT vs. Vegetable Products Ltd. ((1972) 88 ITR 192
Abdul Rahim Suleman Ghaswala 8 Abdul Rahim Suleman Ghaswala (SC)) where the Hon’ble Supreme Co (SC)) where the Hon’ble Supreme Court has laid down a principle urt has laid down a principle that "if two reasonable constructions of a taxing provisions are that "if two reasonable constructions of a taxing provisions are that "if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be possible, that construction which favours the assessee must be possible, that construction which favours the assessee must be adopted". It is also relevant to note that the coordinate bench in the It is also relevant to note that the coordinate bench in the It is also relevant to note that the coordinate bench in the case of one of the other co case of one of the other co-owners Shri Sainul Abedin Ghaswala Shri Sainul Abedin Ghaswala (supra) held a similar view and allowed the claim of exemption (supra) held a similar view and allowed the claim of exemption (supra) held a similar view and allowed the claim of exemption u/s.54F.
In view of this discussion and considering the binding judicial In view of this discussion and considering the binding judicial In view of this discussion and considering the binding judicial precedence, we hold that the precedence, we hold that the assessee cannot be denied the benefit assessee cannot be denied the benefit of exemption u/s.54F on the ground that he is jointly owning of exemption u/s.54F on the ground that he is jointly owning of exemption u/s.54F on the ground that he is jointly owning 16.67% in 6 flats since joint ownership/part ownership cannot be 16.67% in 6 flats since joint ownership/part ownership cannot be 16.67% in 6 flats since joint ownership/part ownership cannot be treated as absolute ownership in the absence of any specific words treated as absolute ownership in the absence of any specific words treated as absolute ownership in the absence of any specific words to that effect in section that effect in section 54F of the Act. Accordingly the 54F of the Act. Accordingly the Assessing Officer is directed to allow the claim of exemption u/s.54F as Officer is directed to allow the claim of exemption u/s.54F as Officer is directed to allow the claim of exemption u/s.54F as claimed in the return of income. claimed in the return of income.
In the result, the appeal filed by the assessee is allowed. In the result, the appeal filed by the assessee is allowed. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open Court on nounced in the open Court on 01/ /01/2024.